Buy-Side Deliverable Options in Private Equity Reporting

Financial reporting due diligence guides buyers through complex investments, putting you on the right path to uncover the true value of potential acquisitions. The approach a private equity company takes to its buy-side due diligence activity should never be a one-size-fits-all. For an optimal outcome, this reporting must be unique, much like your company and its targets. The decision of which deliverable to leverage—from a Databook to a full Quality of Earnings (QofE) report—should be made with careful consideration of your goals and constraints equally. By understanding the nuances of each option, private equity professionals can ensure that your reporting is in tip-top shape and strategically aligned with your goals.

So, what deliverable option is best for you?

Understanding Deliverable Options 

Buyers have distinct reporting needs that vary based on the investment’s nature and the depth of analysis required. Let’s cut to the chase: the primary deliverable options include a Databook, a QofE ‘light’ or red flag report, and a full QofE report. Each serves a specific purpose, from providing a high-level financial overview to offering an in-depth examination of a company’s earnings quality. Identifying the right deliverable for your needs can position your deal for the best results.

The Value of a Databook 

A Databook is often the first touchpoint for buyers, offering a snapshot of the target company’s financials. It’s a concise summary that allows buyers to quickly assess the financial health and identify areas for further investigation. Know your way around a spreadsheet? This could be the quick/high-level deliverable for you.

QofE ‘Light’ and Red Flag Reporting: A Strategic Middle Ground 

The QofE ‘light’ report is a strategic choice for buyers who require more than a Databook but less than a full QofE. It highlights key financial risks and opportunities without delving into the exhaustive details of a full report.

A red flag report is another less comprehensive option that provides a quick look into anything alarming or concerning on a target’s financials (hence the term red flag!). Both reports are more cost-effective and time-efficient; however, they won’t deliver the in-depth insight you’ll get from a full QofE.

The Comprehensive Nature of a Full QofE Report 

For buyers seeking a thorough analysis, a full QofE report is the go-to deliverable. It provides a meticulous review of the target company’s financial statements, revenue recognition practices and operational performance. This report forms the foundation for robust due diligence, ensuring buyers have all the information needed to make confident investment decisions.

After all, the devils in the details, and these details matter when it comes to private equity investments. A full QofE report sheds light on the nuances of financial adjustments, revealing any and all factors that may influence a company’s valuation. These factors are the key pieces that can be the undoing of an investment, and a full QofE equips buyers with the insights to know what deal is worth it and which can be passed on. Nevertheless, sometimes a comprehensive report doesn’t make sense for a smaller deal or one on a tight timeline.

Choosing the Right Deliverable for Your Needs 

The selection of the right deliverable is a strategic decision that hinges on the buyer’s specific requirements. Knowing your investment timeline, budget constraints and how much nitty-gritty insight you’re hoping to obtain will help you make this determination.

Talk to Our Team

For buy-side professionals in private equity, the choice of deliverable is more than a mere formality, as this decision will impact the outcome of your investment (and who doesn’t want to have a successful outcome?). By carefully considering the available options and aligning them with your strategic objectives, you can ensure you’re equipped with the insights you need. If you are deciding which deliverable option is best for your next transaction, talk to the Sikich team of transaction advisors today!